The wage continues to be one of the most important reasons why we do or do not want to work for a company. Nevertheless, more money doesn't always make us happier. British psychologist Claudia Hammond examines 7 hypotheses which help employers find a balance between well paid and motivated employees.
‘People prefer respect to money but money is important because we use it as a gauge for respect’ - Claudia Hammond, psychologist and author of Mind over Money
hypothesis 1: higher wages do not make you happier
People are prepared to leave a job they enjoy and colleagues they get on well with to go elsewhere for a higher wage. ‘Nevertheless, the relationship between a salary and job satisfaction is quite weak. A higher wage doesn't really make you happier’, says Claudia Hammond, who investigated scientific research about money for her book Mind over Money . ‘People often get this wrong and think that a higher wage will make them happier.’
Why are we tricked by a wage? ‘Salary is a symbol of status and prestige, a way of gauging how much we are valued’, she explains. ‘People prefer respectto money but money is important because we use it as a gauge for respect’
hypothesis 2: people have a problem with the idea that they are being paid unfairly
If job satisfaction is the criteria, then the fairness of our wage is more important than the exact amount that appears in our accounts every month. It’s not how much we earn that is important, but how much we earn compared to others.
‘We hate the idea that we are being paid unfairly. We consider this to be a loss and dislike losing’, adds Claudia Hammond.
She refers to a phenomenon that is called loss aversion in psychology. ‘We place huge importance on suspicions that a colleague has more even if we already have a high salary and the difference doesn't amount to much'
hypothesis 3: lowering wage tension is a good initiative
The difference between the highest and lowest wages in an organisation is increasing and Claudia Hammond believes this a negative development. It is the reason for a great deal of bitterness. Employees become extra critical of management decisions as a result; they earn so much money but can’t even make a decent decision.
‘Lowering wage tension is a good initiative’, explains the psychologist. ‘You don’t want to make it look like you value one person much more than another. You want to create the feeling that everybody is working together, that everyone is pulling in the same direction. That is really tricky when there are huge wage differences.’
hypothesis 4: an inefficient bonus system can have undesirable effects
Bonuses are a way to motivate employees to put in improved performances. The research that Claudia Hammond examined about the effectiveness of bonuses showed that they are most effective forpiece-work.
‘If you pay someone to pick fruit, they will pick more fruit if you pay per item rather than per hour’, she explains.
‘If you work with financial incentives, they have to be very specific. You have to think carefully about what you want people to do for their bonus. Do you want them to work more hours, think more creatively, do their best...? But what does that mean? Bonuses are more successful if they are linked to something very specific. But if you set extremely precise targets, you must also be aware that people will do everything they can to achieve them, even if that means ignoring other organisational targets. A bonus system that is not well thought through can have undesirable effects.’
hypothesis 5: employees must believe that rewards are achievable
‘Collective bonuses can be more effective than individual bonuses’, says Claudia Hammond. ‘The problem with individual incentives is that they can reduce cooperation between people as they create competition.’
However, sometimes the direct link between individual productivity and the rewards on offer for collective bonuses can be unclear and this can make them less effective. ‘Employees must believe that they can achieve the rewards. They must be very clear about what they have to do to receive them.
hypothesis 6: people love to be praised
We know that a higher salary only makes us a little happier. But we also know that people feel drawn to jobs with higher wages. What does this mean for employers? ‘It’s tricky’, says Claudia Hammond. ‘What employers could do is value people in other ways. They could ‘celebrate’ their employees. This may sound old fashioned but it has a huge impact. Managers often say that people know when they have done something well and that praise is not required. But they are wrong; people love to be praised.’
hypothesis 7: if people feel like they are being underpaid, they will work slower
There are very few people who think they are overpaid, according to Claudia Hammond. Those who are paid more will always find reasons to justify it. There are many more people who believe they are underpaid and that is problematic. The psychologist refers to the equity theory.
‘This theory states that in the workplace, you estimate whether you are correctly paid or over/under-paid and that you then try to compensate for this assessment. If people feel like they are being underpaid, they will work slower Of they stop demonstrating what we call citizen behaviour, i.e. actions that benefit the greater good, such as filling the paper in the printer.’
Claudia Hammond is a psychology tutor and BBC presenter. She writes books for the general public, such as the recent 'Mind over Money – The psychology of money and how to use it better'. ‘What interests me is how money or the lack of it can impact upon how we think, feel and act. I wanted to find out how we end up making dubious financial decisions due to errors in thought processes.’